My Prediction: February Recession

Every time there is a major recession, experts say afterward that nobody saw it coming. I think experts don’t see recessions coming because they–by virtue of being experts–are not regular people, and don’t see what regular people see, or feel the pressures that regular people feel. Yes, the Wall Street Journal or Economist analysts and the policy staff for the Treasury Department have read about economic factors that effect “regular people,” but I doubt–with their Ivy League educations and their political connections–that they sense the workaday economic stressors that the majority of people in the country experience. They base their economic projects on abstract factors like interest rates versus stock yields and the effect this has on stock prices, and forget that most of the people who actually labor and make drastically different economic decisions based on small changes in commodity prices don’t have stocks or bonds, even through a retirement plan.

I predict a recession in February, and I predict it will be pretty long-lasting, and here is why.

Stock’s are astronomically high, with no basis outside of speculation. Stock prices have risen by 25% since election day of 2016. It is not because production is up 25%, or because some new resource was discovered or technology was invented which increased the value of industrial resources by 25%. Stocks are up 25% only because investors expected that corporations would receive a tax cut under the Republican tax plan–which they have–an 11% tax cut. Of course this means that corporations will have more cash for paying dividends to investors, to put toward reserves, to buy shares of other companies. If a 25% year-over-year increase in the stock market isn’t a speculative bubble, I don’t know what is. The question is, when will it burst? I say February.

Wages have not kept up with inflation. My monthly rent increased 10% this year. Food costs are up. I would bet my bottom dollar that local property taxes are going to be up year-over-year. The economic activity of working class people are like sands underneath the economic pyramid. When they stop spending money because they can’t make ends meet, it hurts the retail, hospitality and tourism sectors on which many other working-class people depend, and the sectors that supply those industries. It seems to me that just as during the 1920s, when there was a prolonged depression in the agricultural sector even while the stock market was booming, right now we have a recession within the working class even while the stock market has exploded.

The holidays kept consumer spending up and now it will fall precipitously. Even though almost everybody I know has said they’re having a hard time meeting bills to some extent or another, most people still bought presents for the holidays. Some people spent money they didn’t have. Now the holidays are over, the Postal Service and the retail chain stores will lay off their extra workers, people in the construction industry will go on UI for the winter, and consumers, generally, will try to spend as little as possible in order to shore up their meager personal savings or pay down their credit cards.

The cold will hurt. Half of the country is undergoing an ice freeze. That keeps people inside. It also raises the costs of local governments for salt and road maintenance, which will tend to increase local taxes. It also means a bigger slice of the monthly budget has to go to utility bills. But more than that, people get downright depressed when it is brutally cold, and January and February are the worst months of the year. Maybe Netflix and Hulu stock will go up, but the rest of restaurant and hospitality sector will go way down.

If there is the slightest bad news, there is nothing the government can do to mitigate the negative effects. Interest rates are still at rock bottom after the last Republican-tax-cut-deregulation-funded recession. The deficit is sky-high and the Congress is not ideologically aligned with the idea of massive public works projects if things start to go south. In the event of a stock dip, the President, no doubt, like Herbert Hoover, will assure the country that the economy is “fundamentally sound,” when in reality it is sound only at the very top, and everyone knows it, but they ignore the fact as long as stocks are going up.

This is the scenario I see–which I am really not hoping for, but I think it is foolish to ignore the facts: Come January, consumer spending will drop, the job report will be weak, people will try to rein in their spending after the holidays, pay down credit cards, and save up for school taxes; the people will be ornery because the weather is bitterly cold, their money is not going as far as they expected, the country is socially divided; they will hunker into a defensive economic posture. A few of the big retail chains might report less-than-great profits as a result of the retraction in consumer spending, and their stock prices will start to dip. Meanwhile the tax break which was supposed to create jobs for anybody who wanted one won’t seem to create any jobs. People will get more frustrated as February rolls in with a bad winter storm. Some economists will start to predict that the stock bubble has reached its limit. Either a scandal will break that hurts the President, which will hurt the stock market, or Congress will fail to avert a shut down, or some insurance company will turn out to be overextended and insolvent, and it will trigger a jolt to the stock market. Stocks will dip and there will be nothing the government can do to stop the “correction.” Meanwhile the rest of the economy is already gasping for breath and the $1,000 the average person got from their tax return will already have been spent to pay down their credit card or pay their property tax which is no longer deductible. It doesn’t really matter what starts the fall, because once it happens, there is basically no leadership in the country, no great minds, no resources or plan to arrest the trend.

If you have any money in stocks, I’d consider taking it out and investing in bonds around January 2nd.